Thu, 08 Jun 2023

ISTANBUL, Turkey: As state lenders reduced the amount of dollar sales to prop up the currency for the ninth consecutive day, the Turkish lira plunged in value to a new low for the year.

According to traders who asked to remain anonymous, over the past two days state-owned banks sold more than $1 billion to support the lira, though their interventions have reportedly slowed down.

The Turkish currency, which has plunged 16 percent this year alone, weakened as much as 2.1 percent to 15.8838, its lowest since December, being the worst performing currency in the world, except for Sri Lanka's rupee and Ghana's cedi.

A widening current-account deficit, soaring inflation and an ultra-loose monetary policy have placed pressure on the currency, along with Turkish President Recep Tayyip Erdogan's unconventional economic theory that higher rates drive inflation.

"A weaker lira reflects vulnerabilities of the Turkish economy to high energy prices and growing risk of a global recession or at least a synchronized slowdown," noted Piotr Matys, an analyst at InTouch Capital Markets Ltd.

"The measures implemented by the Erdogan administration, in cooperation with the central bank, are not proving sufficient to keep the lira stable for an extended period," he added.

This month, Turkey's Treasury and Finance Minister Nureddin Nebati said the country will issue inflation-linked bonds for individual investors, in a bid to increase the appeal of lira assets.

However, the cost of insuring Turkish government bonds against default for five years rose above 710 basis points, hovering near the highest level since 2008, is a sign of the unease among investors.

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